13 July 2018

Tanzania: Central Bank Adopts Plan to Control Inflation

Dar es Salaam — The Bank of Tanzania (BoT) is finally looking to implement the Price-Based Monetary Policy (PBMP) during the 2018/19 financial year.

The BoT senior economist in the Economic Research and Policy Department, Mr Lusajo Mwankemwa, said disclosed this yesterday at the Dar es Salaam International Trade Fair (DITF). Speaking to The Citizen, Mr Mwankemwa said the PBMP will now be used to control inflation.

"We are in the process of shifting to the new plan. We are currently using the Quantitative Price-Based Policy, but things will soon change," he said. However, he noted that with technological changes, particularly in mobile money transactions, the Quantitative Money-Based Monetary Policy has become weak and is failing to control inflation.

Mr Mwankemwa stressed that they were working hard to control inflation, but the ever changing technology in the financial sector is making it difficult for them to attain their goal.

Globally, according to him, the PBMP is being implemented in countries such as New Zealand, US, UK and several other developed nations.

"Most of the developed countries use this system because the level of financial innovation is high compared to developing countries," he said. He added that in Africa some countries have already adopted it, including South Africa, Kenya and Uganda, and that regionally the East African Community (EAC) has agreed to implement the policy.

Currently, BoT determines the quantity of money in supply through the Quantitative Based Monetary Policy, however interest rates change in accordance with the quantity of money on supply thereby affecting the market price.

He said the central bank will now be setting interest rates in which it will be lending to commercial banks and not individuals.

According to him, the BoT's expectation is that lower interest rates to commercial banks will have a trick-down effect.

Tanzania

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